Selling our Cows to Buy Milk

On Tuesday of this week we learned that in 2006 Americans racked up a record
$763.6 Billion trade deficit, and that two Australian mining firms, Rio Tinto
and BHP Billiton, were each contemplating $40 billion bids for U.S. aluminum
giant Alcoa. Not only did Wall Street and the media fail to grasp the negative
significance of each story, but they also failed to see the strong connection
between the two.

By running huge trade deficits, Americans are literally selling cows to buy
milk. Alcoa is just the latest heifer headed for the auction block. In other
words, because we do not trade enough domestically manufactured consumer goods
for those we import, we are making up the difference with our assets instead.
To the extent that foreigners are tiring of buying more Treasuries and mortgage-backed
securities, they are casting their eyes on industrial assets. Last year's trade
deficit alone provided foreigners with enough dollars to buy twenty Alcoa's.

Many Americas do not see the downside of such a transfer. In fact, they might
even see it as a benefit, as shares of Alcoa would likely rise sharply. However,
in exchange for losing one of the world's preeminent mining companies to Australia,
Americans would only be compensated by the return of their paper dollars. Future
profits that would have been earned by Americans will now be earned by Australians
instead.

Founded in Pittsburg in 1886, Alcoa is now the world's leading producer and
manager of aluminum, employing more than 120,000 employees in 44 countries.
Every day Alcoa mines 86,300 tons of bauxite and 27,300 tons of coal, refines
41,000 tons of alumina, smelts 9,575 tons of aluminum, recycles 2,300 tons
of aluminum, manufactures 8,810 tons of aluminum products, produces 166 million
closures for beverage and food containers, assembles wire harnesses for 20,400
vehicles, generates 96,000 MWH of electricity, and purchases $27 million in
goods and services. The sale of Alcoa would be a great loss to the American
industrial landscape.

It is astounding that so many fail to see the sale as further proof of America's
economic decline. In his testimony yesterday before the Senate Banking Committee,
Fed Chairman Ben Bernanke showed little concern for the trade deficit and its
implications for the American economy. If our economy really was as strong
as Mr. Bernanke believes, Alcoa would be buying foreign companies, not the
reverse. Nations with strong economies use their trade surpluses to acquire
choice foreign assets. Nations with weak economies are forced by their trade
deficits to surrender those assets.

In the end, when foreign central banks finally allow the dollar to collapse,
it's not just Alcoa, but many other Dow Jones companies that will ultimately
fall into foreign hands. After all, a sharp decline in the dollar will make
those companies dirt cheap for foreign buyers, who will have little else to
buy with the trillions of dollars burning holes in their very deep pockets.
America will be reduced to the role of a secondary economic power. Our citizens
will work primarily for foreign-owned companies while the profits are sent
back to their far wealthier foreign bosses.

Mr. Schiff is one of the few non-biased investment advisors
(not committed solely to the short side of the market) to have correctly called
the current bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S. stock market,
commodities, gold and the dollar, he is becoming increasingly more renowned.
He has been quoted in many of the nations leading newspapers, including The
Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times,
The New York Times, The Los Angeles Times, The Washington Post, The Chicago
Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle,
The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer,
and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and
Bloomberg. In addition, his views are frequently quoted locally in the Orange
County Register.

Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in finance and
accounting from U.C. Berkley in 1987. A financial professional for seventeen
years he joined Euro Pacific in 1996 and has served as its President since
January 2000. An expert on money, economic theory, and international investing,
he is a highly recommended broker by many of the nation's financial newsletters
and advisory services.